Ron Shevlin

𝗧𝗵𝗲 𝗨𝗻𝘀𝗽𝗼𝗸𝗲𝗻 𝗦𝘁𝗼𝗿𝘆 𝗕𝗲𝗵𝗶𝗻𝗱 𝗙𝗶𝘀𝗲𝗿𝘃’𝘀 𝗦𝘁𝗼𝗰𝗸 𝗣𝗿𝗶𝗰𝗲 𝗗𝗲𝗰𝗹𝗶𝗻𝗲

The fintech literati on LinkedIn are busy extracting insights from Fiserv's stock price fall and making broad proclamations about what it means to the banking and fintech world:

▶️ “For banks, this moment demands attention because banks’ dependency on Fiserv links directly to their ability to deliver payments, scaling, and digital innovation to customers.”
𝗠𝘆 𝘁𝗮𝗸𝗲: This has been true for years.

▶️ “The market is drawing a line under the growth at all costs era—investors now reward quality of growth.”
𝗠𝘆 𝘁𝗮𝗸𝗲: The previous “growth at all costs era” ended two years ago and a new one--rooted in AI and stablecoin exuberance--is taking hold. The Fiserv stock price decline is unrelated to investors rewarding quality of growth.

▶️ “It signals a major recalibration of expectations for a vendor deeply embedded in banking tech infrastructure.”
𝗠𝘆 𝘁𝗮𝗸𝗲: This is correct--but begs the question "why is this recalibration happening now?

The “major recalibration of expectations” needs to be unpacked. William Blair analysts wrote that they’re:

"Perplexed by a 4.5 point sequential merchant organic revenue growth deceleration and a roughly 10-point financial solutions segment revenue deceleration."

Really? Why were they so “perplexed”? For years, Cornerstone Advisors has been writing and talking about Fiserv's service issues and technology challenges.

How do my colleagues know that? They talk to bank and credit union execs day in and day out. Who are the Wall Street analysts talking to?

It doesn’t seem like they’re talking to the bankers. They could blame the prior management team at Fiserv for misleading them, but that doesn’t get them off the hook for not knowing what was going on at Fiserv.

𝙒𝙝𝙖𝙩 𝙣𝙤 𝙤𝙣𝙚 𝙞𝙨 𝙨𝙖𝙮𝙞𝙣𝙜 𝙖𝙗𝙤𝙪𝙩 𝙁𝙞𝙨𝙚𝙧𝙫’𝙨 𝙨𝙩𝙤𝙘𝙠 𝙥𝙧𝙞𝙘𝙚 𝙛𝙧𝙚𝙚𝙛𝙖𝙡𝙡: 𝙒𝙖𝙡𝙡 𝙎𝙩𝙧𝙚𝙚𝙩 𝙝𝙖𝙨 𝙗𝙚𝙚𝙣 𝙤𝙫𝙚𝙧𝙫𝙖𝙡𝙪𝙞𝙣𝙜 𝙁𝙞𝙨𝙚𝙧𝙫’𝙨 𝙨𝙩𝙤𝙘𝙠 𝙖𝙡𝙡 𝙖𝙡𝙤𝙣𝙜.

Fiserv's competitors (FIS, JHA)--haven’t seen the same rise in their stock’s valuation like Fiserv.

Reality: Fiserv stock decline isn't a "major turning point in banking and fintech," but just a decline in one company’s stock price from irrational exuberance to rational reality.

Meaning: This doesn’t represent some life-threatening crisis for Fiserv as a company.

Someone told me, “it must’ve been a tough week for Mike Lyons,” Fiserv’s CEO. Au contraire, Pierre. The stock drop was a gift from Wall Street:

1️⃣ He gets to blame the previous management team for Fiserv’s problems;
2️⃣ He gets to make drastic cuts and changes (because the Street believes this is a “life-threatening crisis”); and
3️⃣ The starting stock price on his watch is reset to $71 from $128.

Wall Street just put a lot of treats in Fiserv CEO Mike Lyon’s basket this Halloween week.

𝗔 𝟰𝟬% 𝗿𝗲𝗱𝘂𝗰𝘁𝗶𝗼𝗻 𝗶𝗻 𝗮 𝗯𝗮𝗻𝗸'𝘀 𝗰𝗼𝘀𝘁 𝘀𝘁𝗿𝘂𝗰𝘁𝘂𝗿𝗲 𝗳𝗿𝗼𝗺 𝗔𝗜 𝗶𝘀 𝗡𝗘𝗩𝗘𝗥 𝗴𝗼𝗶𝗻𝗴 𝘁𝗼 𝗵𝗮𝗽𝗽𝗲𝗻

A recent McKinsey analysis about the impact of AI on a bank's cost structure is off-base. The consulting firm's premises:

▶️ Banking industry costs may decrease by $700 billion to $800 billion, or ~15% of costs. In a more aggressive scenario--where "AI revolutionizes everything"--banks will see a 40% (or higher) reduction in their cost structure.

▶️ AI-driven changes in customer behavior might help consumers "easily transfer deposits to higher-yielding accounts and to optimize credit card spending and balances." According to McK, this could diminish profits from those retail banking products by more than 30% in Europe and North America."

𝗠𝘆 𝘁𝗮𝗸𝗲𝘀:

1️⃣ 𝗔𝗜 𝘸𝘪𝘭𝘭 𝗿𝗲𝘃𝗼𝗹𝘂𝘁𝗶𝗼𝗻𝗶𝘇𝗲 𝗲𝘃𝗲𝗿𝘆𝘁𝗵𝗶𝗻𝗴--𝗯𝘂𝘁 𝘄𝗲'𝗹𝗹 𝗻𝗲𝘃𝗲𝗿 𝘀𝗲𝗲 𝗮 𝟰𝟬% 𝗿𝗲𝗱𝘂𝗰𝘁𝗶𝗼𝗻 𝗶𝗻 𝗼𝘃𝗲𝗿𝗮𝗹𝗹 𝗰𝗼𝘀𝘁 𝘀𝘁𝗿𝘂𝗰𝘁𝘂𝗿𝗲. The banking industry has been deploying technology innovations--PCs, LANs, internet, mobile, cloud, and now AI--for 40 years to drive operational efficiencies. The result: Total US banking industry non-interest expenses have grown from $21.6 billion to $149 billion. Adjust for inflation and you're still looking at a doubling in NIE.

Old (obsoleted) jobs have been replaced by new--and higher paying--jobs. The reduction in human labor costs has been replaced by lower technology costs--but the aggregate level of technology expenditures + higher cost human labor + regulatory/compliance costs = higher (not lower) overall expenditures, even adjusted for inflation.

2️⃣ 𝗖𝗼𝗻𝘀𝘂𝗺𝗲𝗿𝘀 𝗵𝗮𝘃𝗲 𝗮𝗹𝗿𝗲𝗮𝗱𝘆 𝗺𝗼𝘃𝗲𝗱 $𝟯.𝟮 𝘁𝗿𝗶𝗹𝗹𝗶𝗼𝗻 𝗼𝘂𝘁 𝗼𝗳 𝗯𝗮𝗻𝗸𝘀 𝘀𝗶𝗻𝗰𝗲 𝘁𝗵𝗲 𝗽𝗮𝗻𝗱𝗲𝗺𝗶𝗰. McKinsey's concerns about "AI-driven behavioral change" is puzzling since the "behavioral change" has been happening for a while now.

This doesn't mean you should sit in the corner and do nothing. The ROI in investment technology doesn't just come from reduced human labor costs--it comes from improved quality, faster delivery, and enhanced products.

But banks will never see a 40% cost reduction from AI adoption.